Briefing to the Legislative Council Panel on Financial Affairs€¦ · Mobile Number Email Address...

HONG KONG MONETARY AUTHORITY

Briefing to the Legislative Council

Panel on Financial Affairs

4 November 2019

[ Translation ]

2

1. Assessment of Risk to Hong Kong’s

Financial Stability

2. Banking Supervision

3. Financial Infrastructure

4. Development of Financial Market

5. Investment Performance of the Exchange Fund

6. Hong Kong Mortgage Corporation

LC Paper No. CB(1)114/19-20(01)

3

• Significant weakening in global growth momentum

• Uncertainties remain over US-China trade talks

• While various central banks eased monetary

policy recently, US interest rate outlook remains

uncertain

• Geopolitical risks should be heeded

Brexit, political tensions in the Middle East

GLOBAL ECONOMIC TRENDS

AND MAJOR RISKS

4

GLOBAL GROWTH MOMENTUM

HAS WEAKENED SIGNIFICANTLY

Source: International Monetary Fund

Projections for global

economic growth Growth projections for Asian

economies in 2019

Source: International Monetary Fund

5

FAR-REACHING IMPLICATIONS OF

TRADE WAR

Note: Before outbreak of trade war denotes the period from January to June 2018 while after outbreak of trade war denotes the period from July 2018 to August 2019

Sources: CEIC, WIND

Asia’s industry chains were affected Business confidence declined

Note: * Composite PMI

Sources: CEIC, Markit

6

CENTRAL BANKS CUT RATES AMID

ECONOMIC DOWNWARD PRESSURE

Sources: CEIC and WIND

Rate cuts by central banks between early 2019 and October

Central bank Rate cut (%)

US Federal Reserve 0.75

European Central Bank 0.1

People’s Bank of China 0.11

Reserve Bank of

Australia

0.75

7

US INTEREST RATE OUTLOOK REMAINS

UNCERTAIN

Source: Bloomberg

Fed funds rate

(mid-point of target range)

Projections of end-2020 Fed funds

rate target by market analysts

Note: Interest rate projections shown above are taken from Bloomberg’s survey on market analysts during October 2019.

Source: Bloomberg

8

MAINLAND GROWTH RATE

CONTINUES TO SLOW

Source: CEIC

Real GDP growth rate of

Mainland China

Domestic demand indicators of

Mainland China

9

MAINLAND CHINA ROLLED OUT

ECONOMIC SUPPORTIVE MEASURES

• Fiscal policy: Cutting taxes and fees, promoting private and

public investment

Continuing to reduce SMEs’ taxes and fees

Accelerating issuance of local government special

bonds

• Monetary policy: Keeping bank liquidity at a reasonably

adequate level, improving the transmission mechanism

Lowering required reserve ratio

Refining the Loan Prime Rate formation mechanism

Rolling out measures such as the Targeted Medium-

term Lending Facility

10

HONG KONG: INCREASED DOWNWARD

PRESSURE ON GROWTH

-2.9%

Real GDP growth

Source: Census and Statistics Department

11

HONG KONG: WEAKENED EXPORTS

-6.4%

Source: Census and Statistics Department

12

HONG KONG: TOURISM AND RETAIL SECTORS

UNDER PRESSURE

Sources: Census and Statistics Department & Hong Kong Tourism Board

Sep

13

HONG KONG:

ADJUSTMENT IN PROPERTY MARKET

-6.0%

-4.1%

Compared with the

historical peak in 2019

Sources: Rating and Valuation Department and Centaline Property Agency Limited

14

HONG KONG:

ADJUSTMENT IN PROPERTY MARKET

Source: Land Registry

15

• No major deposit or fund outflows; banks are well-capitalised

with abundant liquidity

• HK dollar exchange rate remains stable

• HKMA promptly and repeatedly refuted rumours to reassure the

public

Hong Kong has neither the need nor the intention to change

Linked Exchange Rate System

Hong Kong will not impose capital or foreign exchange

controls (Article 112 of the Basic Law)

Our financial sector is well positioned to withstand market

shocks

• We have the capability, resources and determination to maintain

Hong Kong’s monetary and financial stability

HONG KONG’S FINANCIAL SECTOR

IS ROBUST AND SOUND

Aug Sep Oct

7.70

7.75

7.80

7.85

7.90

7.70

7.75

7.80

7.85

7.90

USD/HKDUSD/HKD

2019

Weak-side CU

Strong-side CUHKD appreciates

HKD depreciates

2017 2018 2019

7.70

7.75

7.80

7.85

7.90

7.70

7.75

7.80

7.85

7.90

USD/HKDUSD/HKD

Weak-side CU

Strong-side CUHKD appreciates

HKD depreciates

16

ASSESSMENT OF RISKS TO HONG KONG’S

FINANCIAL STABILITY: SMOOTH FUNCTIONING

OF HKD MARKET

Source: HKMA

Year Trigger of

Weak-

side CU

Outflows

from HKD

(HK$ bn)

2018

Apr - Aug

27 times 103.5

2019

Jan - Mar

8 times 22.1

Apr - Oct 0 times 0

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

08 09 10 11 12 13 14 15 16 17 18 19

Aggregate Balance

HK$billion

Exchange Fund Bills & Notes

Certificates of Indebtedness &government-issued notes and coins

17


FINANCIAL STABILITY: MONETARY BASE

REMAINS STABLE

Source: HKMA

$54.3bn

Capital outflows from HKD: 2018

$103.5 bn

3/2019

$22.1 bn

$1,075.7bn

$516.9bn

(Oct)

18 Source: HKMA


FINANCIAL STABILITY: HKD RATES STAY

CLOSE TO USD COUNTERPARTS

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2017 2018 2019

% p.a. % p.a.

1-month LIBOR

1-month HIBOR

0

2

4

6

8

10

12

14

16

2012 2013 2014 2015 2016 2017 2018 2019

Other foreign currency deposits

USD deposits

Hong Kong dollar deposits

Total deposits

HK$ trillion

19


FINANCIAL STABILITY:

STABLE DEPOSIT LEVELS

Source: HKMA

(Sep)

0

2

4

6

8

10

12

14

16

2012 2013 2014 2015 2016 2017 2018 2019

HKD deposits

USD deposits


Total deposits

HK$ trillion

0

2

4

6

8

10

12

14

16

2012 2013 2014 2015 2016 2017 2018 2019

HKD deposits

USD deposits


Total deposits

HK$ trillion

10.9

0.1

28.6

20.2

9.6

16.0

12.7

3.5

6.5

16.1

4.4

8.0

1.38%

0.54%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total loan growth(%)

Classified loan ratio*

(Jan - Sep)

Note: * Classified loan ratio covers only retail banks. Classified loan ratio for 2019 denotes figure for Q2.


FINANCIAL STABILITY: ASSET QUALITY OF

BANK LOANS REMAINS GOOD

(Annualised)

Source: HKMA 20

21

• Risks of slowing global growth and trade tension remain

• Significant worsening in Hong Kong’s real economy, with

much pressure on small and medium-sized enterprises

• However, there have been no major capital outflows, and

Hong Kong dollar market continues to function smoothly

• The banking and financial systems are robust and sound,

with resilience against shocks

• As market conditions are subject to change, the HKMA has

stepped up surveillance effort and stands ready to introduce

measures as necessary to maintain banking and financial

stability

HONG KONG’S FINANCIAL SECTOR IS STABLE

BUT NEEDS TO GUARD AGAINST RISKS

22

1. Assessment of Risk to Hong Kong’s Financial

Stability






BANKING SECTOR PERFORMANCE

Total loans grew at a moderate pace,

with asset quality staying at a healthy level

Source: HKMA 23

Note: * Classified loan ratio of retail banks

CHANGES IN

BANK LENDING LIMITS TO SMEs

Source: HKMA

8.1% 7.4% 8.4% 7.9%

87.8% 87.6% 87.4% 87.7%

4.1% 5.0% 4.2% 4.3%

Q1

2017

Q2 Q3 Q4 Q1

2018

Q2 Q3 Q4 Q1

2019

Q2 Q3

Decreased

Unchanged

Increased

24

Source: HKMA

PERCEIVED

CREDIT APPROVAL STANCE OF BANKS

Relative to 6 months ago

15.7% 21.9% 18.7%

12.1%

62.6% 59.4% 62.7%

63.1%

21.7% 18.8% 18.6% 24.8%

Q1

2017

Q2 Q3 Q4 Q1

2018

Q2 Q3 Q4 Q1

2019

Q2 Q3

More

difficult

Similar

Easier

25

BANKING SECTOR SME LENDING

COORDINATION MECHANISM

• Established a Banking Sector Small and Medium Enterprise

(SME) Lending Coordination Mechanism

• Members include the Hong Kong Mortgage Corporation

Limited, the Hong Kong Association of Banks, and major

banks active in SME financing

• Key measures:

make good use of the reduction in countercyclical capital

buffer (CCyB) requirement to support SMEs

clarify the regulatory requirements on rescheduled loans

to facilitate banks in restructuring repayment schedules

strengthen banks’ internal communication to ensure

frontline staff fully understand banks’ policy on SMEs

set up industry platform to collect SMEs’ views 26

LEGISLATIVE WORK

International Standards

• Banking (Liquidity) (Amendment) Rules 2019

• Banking (Capital) (Amendment) Rules 2020

• Banking (Exposure Limits) (Amendment) Rules 2020

Resolution Regime

• Standard disclosure templates under Financial Institutions

(Resolution) (Loss-absorbing Capacity Requirements –

Banking Sector) Rules are expected to be finalised and

published in early Q4 2019

• Introduced on 26 August 2019 a resolution facility and a

number of refinements to various established

arrangements within an updated HKMA liquidity facilities

framework

27

28


Stability






FASTER PAYMENT SYSTEM (FPS)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

No

. of

regi

ster

ed a

cco

unt

s

Mobile Number Email Address FPS Identifier

Number of registered accounts Volume (‘000) Value (HKD bn)

Average daily

turnover of HKD

real-time payments

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

30

50

70

90

110

130

150

Transaction Volume ( '000)

Transaction Value (HKD bn)

29

LATEST FINTECH INITIATIVES

Open Application Programming Interface for the banking

industry

• Phase I largely completed

• Phase II launched by banks in October 2019

Bank for International Settlements Innovation Hub Centre

• First Innovation Hub Centre has been opened in Hong Kong

Fintech Career Accelerator Scheme 2.0

• 110 students accepted offers in the current gap year

placement programme

30

31


Stability






32

CROSS-BORDER RMB BUSINESS

• Mutual market access schemes are operating smoothly.

In September, one more major international bond index

announced its decision to include RMB bonds. Bond

Connect now has over 1,300 registered investors, with an

average daily turnover of RMB8.7 billion in the first three

quarters, up 140% from 2018

• The HKMA continues to discuss with Mainland authorities

on financial facilitation measures in the Greater Bay Area

• RMB deposit pool remained stable at around RMB650

billion in recent months. Average daily turnover recorded

by RMB Real Time Gross Settlement system stayed at a

high level of above RMB1,100 billion

DEVELOPING HONG KONG'S

FINANCIAL PLATFORM Private equity (PE) fund platform

• The HKMA is working with the Government to develop a legislative

proposal on a new limited partnership regime to attract more PE funds to

set up and operate in Hong Kong. An industry consultation was

conducted in Q3 this year and we are assisting the Government to

evaluate industry feedback

Green Finance

• Announced in May three sets of measures to promote green finance:

Three-phased approach to promote Green and Sustainable

Banking;

Responsible investment by the Exchange Fund; and

Setting up a Centre for Green Finance (CGF) under HKMA

Infrastructure Financing Facilitation Office (IFFO)

• Successfully assisted the Government to issue its inaugural US$1 billion

green bond under the Government Green Bond Programme in May. The issuance received favourable market responses, attracting orders

exceeding US$4 billion

33

34


Stability




5. Investment Performance of the Exchange

Fund


INVESTMENT INCOME

* Excluding valuation changes of the Strategic Portfolio. # This is primarily the effect of translating foreign currency assets into Hong Kong dollar after

deducting the portion for currency hedging. @ Including valuation changes of private equity and real estate investments held under the Long-

Term Growth Portfolio. This figure represents valuation changes up to the end of June 2019.

Valuations of these investments from July to September are not yet available.

I 2019 I 2018 2017

(unaudited)

(HK$ billion) Jan - Sep Q3 Full Year Full Year

Bonds 106.3 29.9 57.4 34.4

Hong Kong equities* 8.0 (12.3) (20.7) 58.3

Other equities 69.7 4.6 (38.7) 80.4

Foreign exchange# (5.5) (2.0) (9.0) 53.5

Other investments@ 20.1 - 21.9 37.4

Investment income 198.6 20.2 10.9 264.0

35

INCOME AND EXPENDITURE

* The rate of fee payment is 2.9% for 2019, 4.6% for 2018 and 2.8% for 2017.

# This does not include the 2019 fee payment to the Future Fund because such amount will only be

disclosed when the composite rate for 2019 is available.

(The composite rate was 6.1% for 2018 and 9.6% for 2017. Fee payable to the Future Fund was

HK$16.4 billion for 2018 and HK$22.7 billion for 2017.)

I 2019 I 2018 2017

(unaudited)

(HK$ billion) Jan - Sep Q3 Full year Full year

Investment income 198.6 20.2 10.9 264.0

Other income 0.1 - 0.2 0.2

Interest and other expenses (17.8) (6.4) (17.9) (9.9)

Net income/(loss) 180.9 13.8 (6.8) 254.3

Fee payment to Fiscal Reserves*# (22.6) (7.3) (60.2) (46.2)

Fee payment to HKSAR government

funds and statutory bodies* (6.7) (2.2) (13.8) (8.6)

36

37


Stability






MORTGAGE INSURANCE PROGRAMME (MIP)

• The following revisions were made to the MIP with effect from

16 October 2019:

Raising the cap on the value of a property eligible for a

mortgage loan of maximum cover of 80% loan-to-value (LTV)

ratio from the existing HK$6 million to HK$10 million

For a property eligible for a mortgage loan of maximum cover

of 90% LTV ratio, raising the cap on its value from HK$4

million to HK$8 million

The revised criteria shall apply to completed residential

properties only, with additional 15% insurance premium

Generally speaking, the maximum debt-to-income (DTI) ratio

for all MIP loans is set at 50%, and borrowers have to meet

the stressed DTI ratio. A first-time homebuyer is still eligible to

apply even if he or she cannot meet the stressed DTI ratio,

subject to additional premium based on relevant risk factors 38

• Extension of application period of 80% guarantee product and

continuation of enhancement measures until end-June 2022.

Enhancement measures include (1) reducing guarantee fee rates

by half; (2) increasing maximum loan amount from HK$12 million

to HK$15 million; and (3) lengthening maximum loan guarantee

period from 5 years to 7 years

• In the first eight months of 2019, the number and amount of

applications approved increased significantly by 71% and 110%

respectively as compared to the same period in 2018

• A new relief measure in the form of principal moratorium was

introduced in September 2019. An SME borrower may apply for

principal moratorium of up to 6 months which is renewable,

subject to a maximum of 12 months in total

• A 90% loan guarantee product will be introduced. LegCo

approval on funding will be sought by Government. In parallel,

HKMC is working with the industry on the implementation details

SME FINANCING

GUARANTEE SCHEME (SFGS)

39

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